The relationship between financial decisions and equity risk.

Area of Science:

• Corporate Finance
• Financial Risk Management
• Capital Markets

Background:

• Understanding the determinants of equity risk is crucial for investors and managers.
• Financial decisions, including investment, working capital, and funding, are key drivers of firm behavior and risk.
• Prior research on the impact of specific financial decisions on equity risk in emerging markets remains limited.

Purpose of the Study:

• To investigate the influence of investment, working capital, and funding decisions on equity risk (beta) in Vietnamese industry-construction firms.
• To examine the role of agency theory in mediating the relationship between financial decisions and equity risk.

Main Methods:

• Panel data analysis using Generalized Least Squares (GLS).
• Data collected from industry-construction companies listed on the Vietnam Stock Exchange (2015-2019).

Main Results:

• Investment decisions showed no significant impact on equity risk.
• Working capital decisions positively influenced equity risk.
• Funding decisions exhibited a negative impact on equity risk.
• Agency theory was not found to be a significant factor in the relationship.

Conclusions:

• Financial decisions, particularly working capital and funding, are critical determinants of equity risk in Vietnamese construction firms.
• The findings suggest a need for tailored financial strategies to manage equity risk effectively.
• Implications are provided for investors and managers to align financial decisions with risk management objectives.